Notes:All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel. 2022 figures show data as of 31 October 2022.
The tale of 2022 has been one of two halves. The record-breaking level of investment activity that defined 2021 carried over into 2022. In fact, by the end of the first quarter of 2022, investment levels were tracking a staggering 52% up from 2021. Even at the end of the first half of the year in June, total capital invested still stood around 4% higher than at the same point last year.
July, however, marked the month when the investment frenzy of the past 18 months started to cool off. This slowdown really took effect through August and September and has seen monthly investment levels drop closer to levels last seen in 2018, at around $3-5B invested per month. As a consequence, total investment in Q3 2022 ended up down more than 40% compared to the same quarter in 2021.
2021 was a remarkable year for the European tech ecosystem with total investment eclipsing a landmark $100B for the first time. 2022, unsurprisingly, is on track to fall short of 2021's record-breaking levels, but only by a relatively small margin.
Given the material slowdown experienced over the summer, a conservative estimate would be just around $85B for the full year, as it accounts for actuals up to end of October and annualised on the basis of average investment amounts between the three months of August, September, and October.
It ought to be said: this is the largest amount ever invested in the European tech ecosystem, apart from last year. It does represent a year-on-year decline of 18% - but in the face of the toughest macroeconomic environment since the Global Financial Crisis, such a minimal decrease is a noteworthy outcome.
For further context, this represents a greater than twofold increase in total capital invested compared to 2020, and more than 8x the level recorded when the first edition State of European Tech report was published back in 2015.
In last year's survey, respondents were asked to highlight the main macro risks that could lead to a slowdown in European VC activity over the next five years. Many of the macro risks that ranked highest amongst respondents - interest rates, inflation, geopolitics, and public market sentiment - have all become defining hallmarks of this year. As a consequence, 2022 has been a very different year for the European tech ecosystem.
The slowdown in investment activity started to become evident in later-stage investment rounds around a full quarter before any notable shift was observed in investment levels at earlier-stage rounds. While total capital invested in rounds sized at $20M or more was up 62% in Q1 2022 compared to Q1 2021, the shift in the market that took effect in Q2 saw total investment that quarter decline by 26% versus the comparative quarter in 2021.
In the third quarter of 2022, the comparison is even tougher, with total investment down 48% compared to Q3 2021. The biggest decline, unsurprisingly, came in the level of investment into so-called mega rounds of $250M or more, down 46% year-on-year at the end of September.
After a lag, the slowdown in later-stage investment activity started to trickle down into earlier stages. This shows up most prominently in the numbers from Q3 2022 onwards.
During the first half of 2022, the total capital invested in rounds of $20M or less was up 4% on the same period last year, but a contraction in early-stage activity has led to a third quarter total that is down 5% versus the equivalent period of 2021.
Despite this slowdown, more than $4.3B was invested in rounds sized at less than $20M in Q3 2022, meaning it still represents the second-largest ever Q3 on record for these stages.
European tech companies across both the public and private markets have seen around $400B of value erased since the start of 2022. As a result, the total ecosystem value has fallen to $2.7T from its $3.1T peak in late 2021.
Despite this setback, Europe's total tech ecosystem value has added over $2T dollars in value since 2015, increasing at a remarkable 26% compound annual growth rate (CAGR) over that period. While the growth rate may slow over the coming period, even a CAGR of 3.3% over the next decade will lead to the creation of more than $1T of incremental company value. To reach $5T of total ecosystem value over the next decade, European tech will need to see a CAGR of just 6.4%.
In the first half of 2022, there were a total of 133 rounds of $100M or more. Remarkably, this exceeded the total for the whole of 2019 and 2020 combined, while also exceeding the volume of such rounds seen in either H1 or H2 of last year.
H2 2022 is on track to fall far short of these numbers if Q4 continues in line with Q3's investment levels - with only 37 rounds of this magnitude so far.
The explosion of capital invested into later-stage rounds in Europe over the past two years has, unsurprisingly, led to a rapid rise in the number of unique investors that are actively investing in the region in larger rounds of $100M or more.
These new investors are primarily of European and US origin and have increased more than 5x in the past five years. Interestingly, while 2022 has seen the number of European investors in rounds of $100M+ grow slightly, there is a notable decline (-22%) in the number of active US investors in these rounds since 2021.
The heated market conditions that characterised 2021 saw a record number of new unicorns emerge from Europe, with 105 companies achieving the billion-dollar milestone for the first time last year. This represented a level of new unicorn creation 2.5x greater than any prior record year for the European tech ecosystem.
Unsurprisingly, this year looks very different to last, with 'only' 31 new unicorns birthed in Europe during 2022 (at the time of our publication deadline). This marks a steep decline from last year, but actually just reverts the rate of new unicorn creation back to levels typically seen in recent years. 2021 now clearly stands apart as an outlier year.
IPOs have been one of the biggest casualties of highly uncertain and volatile public markets and negative public market sentiment. The data is stark. There have only been three tech IPOs with a market cap in excess of $1B in Europe and the US this year. This compares to 86 during the bumper year for IPOs of 2021, representing a 30x reduction in volume.
This, of course, has significant knock-on effects for the overall ecosystem in terms of capital liquidity, both from the perspective of the ability to tap the public markets for capital, as well as in terms of the ability for existing shareholders to crystallise value by exiting holdings and distributing or reinvesting any capital gains elsewhere. It remains to be seen when capital market conditions may turn more favourable and enable a partial or full opening of the IPO window.
This year has brought many struggles and challenging choices for people in tech. One of the financial downturn's most visible and severe impacts on the tech sector is the wave of layoffs that started this year. Globally, more than 200,000 tech workers lost their jobs in the past year via headcount reductions at more than 1,000 companies, according to Layoffs Tracker.
Year to date, over 14,000 tech employees of European headquartered companies lost their jobs, representing 7% of all tech employee layoffs globally. These numbers only include layoffs with information on their reduction plans; a number of announcements didn't have data on how many employees were let go, so this data necessarily understates the layoffs' full scale.
The pace of global workforce reduction has accelerated rapidly in the second half of 2022, with November representing a new peak that has seen more than two times the number of layoffs as any prior month. Clearly, this is distressing for many people and has important implications for the global tech industry.
Unfortunately, through both the ups and downs of the past several years, women founders' share of investment has remained relatively stagnant. 87% of all VC funding in Europe is still raised by men-only founding teams, while the proportion of funding raised by women-only teams has dropped from 3% to 1% since 2018.
Meanwhile, the proportion of deals made by women-only teams has stayed at around 5-6%. This means there is a 2-6x gap between the number of deals going to teams of women and the actual amount invested in them, depending on the year. In short, even when women-only teams successfully raise a round, they are likely to receive less - and this pattern is trending in the wrong direction. Looking at mixed teams, these captured only 10% of all rounds raised so far this year - down from 12% last year. However, their share of total funding has slightly increased to 12%, meaning that the amount of funding per deal is improving.
Overall, when considering the record levels of funding that poured into the ecosystem in 2021, it's disappointing to see so little of this influx distributed to women founders.
Zooming in on the portion of deals captured by women, the data shows glimmers of encouraging trends - the share of deal count going to women-only teams has increased in the earlier stages compared to 2021. Yet, an opposite trend is evident for mixed gender teams, where the share of deal count captured has decreased compared to 2021 levels.
The reopening of the public markets will likely require greater confidence and certainty around the macro environment. But survey respondents do not expect critical macro factors to evolve positively over the next 12 months.
In fact, the majority of survey respondents expect to see a worsening of public market sentiment, inflation, geopolitical instability, and most other factors. The only brighter spots on the horizon may be an improvement - or at least no further deterioration - in the war for talent and in supply chain challenges. Survey respondents, it seems, are bracing themselves for a challenging 2023 from a macro perspective.
Despite the many challenges ahead, the resilience of the European tech ecosystem and its ability to 'weather the storm' is reflected in a strong continued sense of optimism in the future of European technology. 77% of all survey respondents are either more optimistic or retain the same level of optimism as they did 12 months ago.
Surprisingly, only 23% of respondents have seen their optimism lessen compared to last year. This is likely because insiders within the European tech ecosystem are able to differentiate between the short-to-mid-term impacts of a financial downturn and the longer-term prospects of the European tech industry, which is ultimately dependent on the strength of the entrepreneurial ecosystem and the tailwinds of technological innovation.
The scale and depth of the European tech ecosystem has been transformed over the years. This is illustrated by the rapid growth in the number of companies currently starting out and going on to raise initial rounds at Pre-Seed and/or Seed stage.
By the end of 2021, the volume of these rounds had grown 8x within the space of just 10 years, and more than 17x since 2010. The ecosystem is in a fundamentally different place than it was 10 years ago. The pipeline of promising early-stage companies has never been stronger, despite a likely slowdown in sub-$5m rounds in 2022 compared to last year.
Early stage funding is a leading indicator of future growth and Europe's early-stage ecosystem is on par with the US. European startups account for 31% of all capital invested globally in rounds of up to $5M, compared to 33% for the US.
One of the strongest indicators of the growing maturity of the European tech ecosystem is the rate and scale at which talent is redeployed from one generation of companies to the next. In other words, evidence of a virtuous cycle - or flywheel - whereby success breeds more success.
One way to quantify the flywheel effect is to measure the number of new founders that have 'graduated' from prior cohorts of successful companies. For example, Europe has now seen the emergence of almost 1,500 founders that went on to start their own companies after working for a European unicorn founded during the 2000s.
If we compare 'alumni' from unicorns founded in the 2000s to those founded in the 2010s, it's clear that the flywheel is picking up speed. Today, the 2010s cohort has led to almost 700 identifiable founders – almost 25x the amount from the 2000s cohort at the equivalent point in time.
Companies today lean on experience from different time periods of European tech: 55% of founders and 59% of leaders whose profiles we analysed have multi-generational experience, meaning they have gained experience at two or more tech companies belonging to different generations. Generation is defined here by the founding year cohort to which the companies belong.
22% of founders and leaders in our sample also have experience working at $1B+ companies. Among the 4% of founders with that experience, they have combined exposure to over 200 unique $1B+ companies. For leaders, the recycling is even more visible with 31% having worked for a $1B+ company, across more than 300 unique companies. This is to be expected given only a small subset of leaders go on to found their own company, instead of continuing leadership roles.
It's striking that almost 40% of founders have prior experience founding a company, and close to one in five have founded at least two companies prior to their current one. Many within the leadership pool at the top of European tech companies also have their own entrepreneurial experience, with 14% having founded at least one company in the past.
International work experience is common throughout: one-third of all the founders and 45% of all C-Level leaders in the sample have worked abroad at some point in their careers.
Facing a challenging year in tech, we wanted to explore the extent to which today's founding and leadership teams have prior experience operating during downturns. To do so, we looked at how many companies in the sample have founders or leaders with more than 15 years of work experience - and therefore experience from a previous downcycle period in tech.
In our sample, we found that 62% of all companies have at least one founder or C-Level leader with prior downcycle experience. As is to be expected, companies that have raised more capital (>$100M in total), and are therefore more mature, are also more likely (78%) to have founders or leaders with prior downcycle experience. Earlier-stage companies, which we defined in this analysis as having raised less than <$10M total, are less likely to have this downcycle experience (57%). That said, the pandemic already put many of these founders to the test, and prepared them for dealing with uncertainty.
Despite the withdrawal of some more fickle investors and the likelihood that others may also pull back their investment activity, the European tech ecosystem still benefits from a diverse set of experienced, long-term oriented, and active investors. So far during 2022, more than 3,200 unique institutions have participated in at least one investment in Europe, a number which has grown at a significant volume over recent years.
While capital market conditions have changed significantly during the second half of 2022, the ecosystem still benefits from access to large pools of investable capital that have not yet been deployed, known in industry terms as 'dry powder'.
At the end of 2021, the latest period for which comprehensive and reliable data is available, European venture and growth investors sat on dry powder totalling $84B. This is the highest ever amount of dry powder on record and represents a 2.3x increase on the level of 2017.
Since then, 2022 brought both strong fundraising activity and overall slower deployment - so in all likelihood, this number remains similar or potentially has even net increased.
It is reassuring that there will still be some level of capital liquidity within the market, even if conditions become tighter in 2023 than they have been during the second half of 2022. The pace at which that capital is deployed, however, is something to watch out for as investors recalibrate their plans to a new market reality.
LP appetite to invest in the European venture asset class remains. Though a small number of LP respondents to our survey (8%) report a decreased appetite compared to 12 months ago, we see more than 30% noting they have an increased appetite.
The largest share of respondents (almost 60%) say that their appetite remains unchanged during the last year, which itself has been an important year in further building LP appetite to commit to European VC.
Given the shift in the macro environment and the widespread layoffs, it is not surprising to see less confidence in tech in this year's survey: 28% of survey respondents believe tech now offers less attractive opportunities. Last year only 2% felt it was less attractive.
But despite the hardship, many remain positive. According to our survey, 41% of employees and department heads believe it is more attractive to work for a European tech company today than it was 12 months ago.
Notably, sentiment is particularly optimistic in France and Spain, where the local ecosystems have thrived in recent years. In fact, many within the ecosystem, especially those with stronger risk appetites, see the downcycle as an opportunity for faster learning and development, as well as for better access to risk-adjusted upside potential.
Purpose-driven tech is inching back towards the record it reached in 2020, representing close to one-fifth of total capital invested. While purpose-driven companies address any of the United Nations' SDGs, Planet Positive is a subset of SDGs which target sustainable use of the planet's resources. This year, Planet Positive companies gained further market share of the broader tech market, capturing 19% of total European funding so far this year, up from 15% last year. Year to date, this represents $10.3B invested in tech companies with Planet Positive themes.
Climate tech, the smallest subset addressing only SDG 13, Climate Action, stands at $6.9B YTD. While all three categories have exhibited upward trendlines since 2018, both 2020 and 2022 - two years defined by global crises - saw spikes in their share of overall investments.
Over the past five years, investment in purpose-driven tech companies has increased at a huge scale on a global basis, spiking materially in 2021 in all major regions. This growth has seen total cumulative capital invested in Europe into purpose-driven tech companies reach more than $54 billion since the start of 2018.
Interestingly, investment levels on an annualised basis in Europe look set to come very close to matching 2021's record-breaking amounts. By contrast, investment amounts in North America and Asia decreased by around 40% and 45% in 2022 compared to last year, respectively.
On a global basis, Europe now accounts for the largest share (57%) of all investment going into early-stage purpose-driven tech companies, as defined by the share of capital invested in rounds up to $20M. This is very meaningful given Europe's share of overall global investment stands at 23% only.
For the earliest stages (i.e. rounds of less than $5M), Europe's share is even more significant, equating to 70% of all capital invested globally.
At later stages, however, Europe's share of global investment into purpose-driven tech companies is lower: for rounds of $100M+, Europe has a 41% share.
The increased level of investment into purpose-driven tech companies has translated into a growing number of breakout companies emerging from Europe with purpose at their core. There are now 42 European unicorns classified as purpose-driven, a close to threefold increase from 15 just three years ago in 2019. As a result, purpose-driven unicorns now account for 12% of all European unicorns.
Climate Action (SDG 13) has received the most funding overall and has accelerated with 4x more funding than 2017-2019's cumulative figure. But other themes are accelerating and, in particular, Life on Land (SDG 15), Responsible Consumption and Production (SDG 12), and Industry Innovation and Infrastructure (SDG 9) have had even higher growth multiples since 2017-2019 levels, 6x, 4.7x, and 4.6x respectively.
Despite this growth, it is telling that SDGs 15 and 14 - Life on Land and Life below Water - remain at far lower overall funding levels compared with the other climate-related SDGs listed.
This likely reflects the continued challenge over funding (and monetising) innovations / deep tech related to biodiversity, oceans, and general natural capital resources requiring more patient capital. But numerous entrepreneurs, investors, and policymakers continue to try to crack this case; hopefully the growth rates we see here - since 2017, 25x and 5x respectively - are harbingers of much more growth and innovation to come in these important areas.
Much has changed since February 2022, but Ukrainians and the Ukrainian tech ecosystem have demonstrated incredible resilience - and even growth - in the face of war.
of ICT companies had restored business to the indicators of 24 February 2022, and are continuing to grow, according to the July IT Research Resilience study by the Lviv IT-cluster.
of the country's ICT companies have attracted new customers since the war began according to IT Ukraine Association data.
Despite the conditions caused by Russia’s invasion and its brutal war, the Ukrainian Internet and Communication Technology (ICT) sector showed significant growth in February 2022. The single month export figure amounted to $839M, 31% higher than in January 2022, 45% higher than the monthly average for 2021, and 75% higher compared to February 2021.
For the first eight months of 2022, ICT exports actually grew by 16% year over year, according to the monitoring service Opendatabot.
Additionally, as another slice on the data, per the National Bank of Ukraine, during the first nine months of 2022, the volume of Ukrainian computer services increased by 13% (to almost $5.5B). The overall taxes / fees paid by the ICT industry during this time totalled $1.3B. Nine months into this year, the Ukrainian national ICT industry has maintained positive growth and remains the only export industry that stably generates foreign currency income for the Ukrainian economy under current war conditions. Ukrainian companies keep working continuously, implementing projects, paying taxes, attracting investments and new customers, and actively entering the global market.
According to the latest mapping of the Ukrainian tech ecosystem by Dealroom, Ukraine is home to more than 1500 startups, while there are a further 600 Ukrainian-founded tech companies that are based outside of the country. Dealroom estimates that the combined enterprise value of Ukrainian tech companies totals almost $23B and, while this has declined in 2022 in line with the global technology market changes, their overall value has grown by more than 8x since 2017. For a local database, check out the ecosystem overview put together by Ukraine's Ministry of Digital Transformation.